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Gradient Capital fights potential collapse amid massive loss

Gradient Capital Partners, one of the UKâ€™s most renowned hedge funds, is on the verge of collapse following a nearly 42% plunge in value last month.

The City-based European equity fund, which managed $2.5bn (â‚¬1.8bn) in assets at its peak, is currently down over 63% for the year, prompting liquidation fears among investors.

Sources said that Ivor Farman and Scott Pagel, who co-founded Gradient in 2001, are considering ways to resuscitate the business. The firmâ€™s low-cost structure, with a headcount of only four, might hold the key in this regard.

Meanwhile, Ted Martin, chief of Perry Capitalâ€™s risk-arbitrage division, has quit the US hedge fund along with a senior trader in the group.

The move comes as the firm, which started out in 1988 with a focus on merger arbitrage, is reorienting its business strategy away around credit, particularly distressed debt. As part of that exercise, Perry has retrenched between 20 and 30 employees, sources said.

It is understood that plummeting equities markets have hit Perry Capital hard, with its $11bn flagship fund down 8.5% in the third quarter alone.